Workers Compensation in the Quick Printing Industry

(This study is based upon preliminary results obtained from an NPOA survey conducted in late June and early July 2013. We received surveys from 122 companies, and 238 specific Workers Compensation quotes.) NATIONAL PRINT OWNERS ASSOCIATION 2110 South Dairy Road West Melbourne, FL 32904 321-727-2444 Fax 321-727-2166 www.printowners.org An NPOA Special Report July 22, 2013 Workers Compensation in the Quick Printing Industry Results are in from NPOA s recently-concluded preliminary survey of Workers Compensation rates in our industry, and the findings are proving to be a real eye-opener in terms of rates being paid and classifications being used. Workers Compensation insurance rates are regulated and established solely at the state level. Most states (and the insurance companies providing coverage within these states) rely on a classification system devised and maintained by the National Council on Compensation Insurance or NCCI. There are, however, a handful of states that do not use the NCCI classification system, choosing instead to use their own. Those states are: California, New Jersey, New York, Delaware, Massachusetts, and Pennsylvania. There are still other states that, while relying on the basic NCCI system, have chosen to make major modifications to many of the NCCI classification rules. Texas is one of those states. As an example, Texas may use a suggested NCCI code but has reserved the right to either broaden or narrow what is included under that code. Other states such as Pennsylvania and Illinois, while relying in large measure on NCCI classifications, have created their own special classification codes for certain industries. As a result, these codes do not appear in the NCCI list. NCCI Classification System Generally speaking, the NCCI classification system attempts to classify the overall business enterprise of an employer, not the particular work performed by specific employees - at least that s the theory. In practice, however, NCCI and the states relying on the NCCI classification method, allows for exceptions NPOA WORKMANS COMPENSATION INSURANCE INDEX based upon the work being done, thus resulting in numerous classification codes being assigned to individual companies. The most common exceptions allow for some employees to be classified as clerical, outside sales, and drivers. The result being that while a company may have a relatively high exposure rate (roofing, window glass installers and printing), they may be allowed to use much lower rates for employees performing primarily clerical duties, outside sales and deliveries. As additional background to this entire system is the fact that the NCCI is largely funded by insurance companies with insurance industry executives making up the vast majority of its board members. Although NCCI proclaims its independent status, many question this status as being one of the fox guarding the chicken coop. NCCI has chosen not to provide the business community with an easy and free lookup method for checking specific classification codes or descriptions, choosing instead to sell this service. However, we have found a number of sources where such information can be found. NPOA Workman s Insufficient Data <= $0.40/$100 $0.40 - $0.60/$100 $0.61 - $0.90/$100 $0.91 - $1.25/$100 $1.26/$100 or higher Useful Websites for Checking Workers Compensation Data One of these sites is located at https://www.wcrb.org/wcrb/classcode/ main.asp. This site is maintained by the state of Wisconsin, and while it tracks and reports Workers Compensation Published by NPOA & Q.P. Consulting, Inc. -1- Copyright 2013 NPOA

rates specific to Wisconsin, it also provides a handy tool that allows users to input a 4-digit code, or a general description, and it will provide the general description assigned to that code. Although it is a commercial site offering insurance quotes and coverage, we found the following site very informative and useful as well: http:// www.workerscompensationshop.com/ workers_compensation_class_codes. htm. Once you arrive at the site, go halfway down the right-hand column where you will find a list of states. Select your state and it will take you to some useful information about your state and where it stands in comparison with other states in terms of WC premiums. As an example, visit the site above and then click on California. That will immediately bring you to the following editorial copy: California is an expensive state for Workers Compensation. A 2010 study based on premium rates listed California as the 5th most expensive state for comp rates. That is a jump from 2008 when CA ranked 13th. s with higher rates than California include Montana, Alaska, Illinois, and Oklahoma. CA Workers Comp rates are 31% higher than the national median. Click on Pennsylvania and it will return a similar factoid: Pennsylvania ranks as the 14th highest state in the United s for Workers Compensation insurance rates. With rates almost 14% higher than the national average it may be good business practice for employers to shop their rates with an independent insurance agency such as Workers Compensation Shop.com. Or click on MA for Massachusetts and read the following: Massachusetts ranks as the 44th in the nation for workers compensation premium rates according to a 2010 study completed by the Department of Consumer Business & Services. This makes Massachusetts one of the more affordable states in the nation for workers compensation coverage. This represents a slight rate increase in average rates over the same study conducted in 2008, where Massachusetts ranked 49th. However, Massachusetts work comp rates are still 25% below the national median. Why Are Workers Comp Rates Important If owners truly wish to obtain the very best (i.e. lowest) overall Workers Compensation coverage he or she must make every attempt to understand the Workers Compensation system within their state. Otherwise they will be at the mercy of NCCI as well as insurance agents and companies, some of whom may not be fully aware of specific classifications available in our industry. NPOA s recent preliminary Workers Compensation Survey revealed dramatic differences in Workers Compensation premiums per average employee being paid by companies. In some cases this could not be helped due to the specific state in question. In other cases, however, the difference in the total premiums being paid per employee were dramatic. NPOA Workers Comp One of the early steps taken in analyzing insurance rate data supplied by survey participants was to create a Workers Comp. The was prepared by weighting the specific NCCI rating data provided based upon the specific dominance and costs assigned to specific NCCI codes. Average Average & Median & Median Workers Workers Comp Premiums Per Employee Per Employee by by Quartile Quar le $1,200 $1,000 $800 $600 $400 $200 $- $248 $245 PREMIUMS PER EMPLOYEE NPOA examined premium data supplied by survey participants. Participants were asked to provide their total Workers Compensation premium for their latest fiscal year as well as the number of employees covered under their policy. We then calculated the WC premium per employee and ranked the approximate 238 data points from low to high, and then distributed them into four equal quartiles. The results of this appear in the bar graph above. As you can see, approximately 25% of our survey participants reported paying an average of $248 per employee for their Workers Compensation coverage. At the 35% other end of the spectrum, the top 25% of our participants reported paying premiums of $998 per employee, almost four times what those in the bottom quartile. 30% 28.91% Published by NPOA & Q.P. Consulting, Inc. -2- Copyright 2013 NPOA 25% $375 $358 $558 $562 $998 $939 1ST Quar le 2ND Quar le 3RD Quar le 4TH Quar le pondents Average Median WC Code Distribu on - A

Using the resulting data, we calculated a specific index for each company and then averaged that index for all companies within each reporting state (36 states reporting). The result was a representing the relative Workers Compensation rate for that state. Finally, we ranked all states based on their index. The results produced our map appearing on page 1, and two tables: First, and alphabetical listing of states and their respective Workers Compensation. Second, a quartile breakout assigning each state into one of four quartiles based upon their index. The following table is our alphabetical listing: NPOA WORKER S COMP INDEX SORTED ALPHABETICALLY BY STATE AZ $0.38 CA $1.56 CAN $1.30 CO $0.53 CT $0.87 FL $0.96 GA $0.61 HI $0.16 IA $1.16 ID $0.86 IL $1.18 IN $0.29 KS $1.02 KY $0.38 LA $1.00 MA $0.81 MD $0.44 ME $0.51 MI $0.68 MN $0.19 MO $0.60 MS $1.61 MS $0.93 NC $0.86 NE $0.33 NH $1.08 NJ $1.73 NY $0.61 OH $1.27 OR $0.49 PA $1.24 SC $2.01 TX $1.37 VA $0.52 VT $2.14 WI $1.29 WV $0.20 Printers from 36 states, plus two from Canada, participated in our survey. For our second series of charts, we divided our data into four approximate quartiles and averaged the responses within each quartile. You can examine the four boxes to see into which quartile your state falls when compared to other states: NPOA WORKER S COMP INDEX STATES SORTED BY QUARTILES TOP (highest) QUARTILE Average $1.59 VT...$2.14 SC...$2.01 NJ...$1.73 MS...$1.61 CA...$1.56 TX...$1.37 CAN...$1.30 WI...$1.29 OH...$1.27 3rd QUARTILE - Average $1.05 PA...$1.24 IL...$1.18 IA...$1.16 NH...$1.08 KS...$1.02 LA...$1.00 FL...$0.96 MS...$0.93 CT...$0.87 2nd QUARTILE - Average $0.68 ID...$0.86 NC...$0.86 MA...$0.81 MI...$0.68 GA...$0.61 NY...$0.61 MO...$0.60 CO...$0.53 VA...$0.52 1st (lowest) QUARTILE Average $0.34 ME...$0.51 OR...$0.49 MD...$0.44 AZ...$0.38 KY...$0.38 NE...$0.33 IN...$0.29 WV...$0.20 MN...$0.19 HI...$0.16 It is important to note when comparing Workers Comp rates from one state to another, especially indexes based upon a broad selection NCCI codes, that indexes can vary significantly based upon the classifications included vs. excluded in preparation of the. A state might very well have generally low, overall Workers Comp rates, but it may also charge much higher premiums than other states for specific industries or classifications. The latter based on a higher incidence or risks associated with certain NCCI classes when compared to other states. Common Workers Compensation Myths In our research for this preliminary report, we talked to and heard from a number of printers, as well as a couple of insurance company representatives, and we heard a number of myths repeated on numerous occasions. These are a few the myths we heard: Myth #1 Workers Compensation Rates are set by the state and there is little to be gained by shopping around among insurance companies. While it is true that rates are set at the state level, it is not true at all that all insurance companies within that state charge the same rate for the same classification. According to our research as well as information provided to us by insurance agents, it is not unusual to see rates for specific classifications and code vary by as much as +/- 25%. Myth #2 All companies within the same state and within a specific industry pay the same rates. This is not true. Even assuming no claims have been filed against the company, insurance companies have significant latitude in adjusting rates established under the NCCI system. It is quite possible for two identical companies with identical claims history to pay different rates for the same NCCI classification code. Published by NPOA & Q.P. Consulting, Inc. -3- Copyright 2013 NPOA

Myth #3 We employee press operators and we are told they must be classified under NCCI code #4299 and we are not eligible under the more popular #8015 Quick Printing Code. If your largest press measures less that 18 x 23 you may be eligible for classification #8015, which generally results in lower overall rates per $100 of wages & salaries. Myth #4 Using the #8015 Quick Printing Code pretty much guarantees us the lowest overall rate in our state. Not necessarily true. If your operation employs a significant number of employees who would otherwise qualify under the #8810 Clerical classification and/or the #8742 Outside Sales category you might be better off paying a higher premium for your press operators while paying significantly lower rates for the latter. Myth #5 I must use an insurance company to purchase Workers Compensation coverage. Generally, this may be true, but not always. If you use a payroll service it may be possible to purchase Workers Comp insurance coverage through them. The advantage of the latter is that you can then pay your Workers Comp premiums at the same frequency that you pay your employees. Myth #6 I am told that all of my employees need to be classified under NCCI code #4299 since all of my employees have the same exposure to risk. This is generally not true, but once again it depends upon the state and the interpretation of the agent writing the policy. Generally speaking, some employees can be classified under less expensive codes such as clerical (#8810) or outside sales (#8742) if it can be demonstrated that these individuals have only incidental, casual or intermittent contact with the employees assigned to code #4299. Oftentimes, all that is required is a separate wall or door that isolates one employee classification from another. What Codes Are You Using? What NCCI Classification codes have you been assigned? Depending upon regulations within your state as well how insurance agents have interpreted the information you have provided, you may or may not have a lot of choice as to what codes may be applicable in your operation. Do not, however, accept initial information regarding Workers Compensation rate as gospel. You need to check with at least two other companies to see what type of coverage and at what costs they might offer. Check as well with fellow NPOA members and competitors within your state and compare what others might be paying. You might be surprised. Should Owners Exempt Themselves? Generally speaking, owners and partners of printing firms are allowed to claim exemption under Workers Compensation coverage. Typical examples of employees granted exempt status include: Officers or directors of corporations registered with a state Construction industry officers who own more than 10 percent of the corporate stock Sole proprietors Casual employees who work at irregular intervals Household domestic service employees Employees of family members dwelling in the same household Real estate brokers and salespeople working solely on commission Employees covered under Federal Workers Compensation Laws NCCI Takes New Look at Printing Classification #4299 As part of its core services, NCCI conducts classification inspections in all NCCI states. This process is called the Classification Inspection Program. The overall intent of the Classification Inspection Program is to monitor the accurate and consistent application of the classification system, thereby maintaining its overall integrity. Based on an analysis of inspections completed between 2009 and the end of 2011 in all NCCI states, NCCI identified five classification codes that are most commonly reclassified, as well as the classification codes into which the employers are typically moved. The term reclassification refers to governing class code changes made to an NCCI Inspection report. According to Rule 1-B of NCCI s Basic Manual for Workers Compensation and Employers Liability Insurance (Basic Manual), the governing code is the classification at a specific job or location (other than a standard exception code) that produces the greatest amount of payroll. One of those codes involving reclassification between 2009 and 2011 involved Printing Code #4299. That code has since been reclassified to Code #8015 Quick Printing. This means that companies formerly classified under #4299 may indeed be now eligible for the generally lower rates available under Code #8015. Published by NPOA & Q.P. Consulting, Inc. -4- Copyright 2013 NPOA

WC Code Distribu on - All Par cipants WC Code Distribution - All Participants 35% 30% 28.91% Percent of All Respondents 25% 20% 15% 10% 5% 0% 3.91% 17.58% 3.91% 2.34% 6.64% 9.77% 17.19% 4.30% #932 #2819 #4299 #7344 #7380 #8012 #8015 #8016 #8029 #8742 #8810 #8813 Misc. Most Common Codes Used in Prin ng Industry DISTRIBUTION/USE OF SPECIFIC CODES IN QUICK PRINTING INDUSTRY The graph above lists the 12 most frequently cited classifications cited Most by our Commonly survey participants. Used As NCCI* an example, Codes approximately Cited in NPOA 29% of all Survey employees were classified under NCCI Code #8015. Note that not all codes cited above are NCCI generated. As an example, #932 is a code used strictly in Pennsylvania to designate quick printers. #8019 is also not an NCCI code, but rather one used solely in California to designate Quick Printing. #8810 (clerical $0.44 or dra ing) $0.09 $0.24 NPOA s Workers Compensation $1.01 owner is paid. The theory behind the your regular health insurance policy may #8742 (sales Survey persons found - that outside) approximately $0.15 62% cap is that, A broken leg is a broken very well disallow payments to cover $0.55 of owners chose to exempt themselves leg, and costs the same to set for the medical expenses incurred as the result from coverage. #8019 (prin ng $2.56 Approximately 72% $1.94 of owner as well as an employee. Getting paid more does not increase the argument being that you had the oppor- of a work-related injury or illness. The - CA & IL) owners indicated they chose to exempt $2.28 their spouses. #8015 (quick $1.78 likelihood that an injury will occur. tunity to seek coverage and you refused. prin ng) $0.49 Although a majority of $0.99 owners Most important of all, and what What should you do immediately? appear to have exempted themselves $1.50 should cause all owners to revisit this #8012 (quick Check-out your regular health insurance policy and go to the section ti- and their prin ng spouses - NY only) from coverage, $1.10 this coverage, is that your regular health $1.28 decision should not be driven solely by insurance policy may in fact refuse tled, Evidence of Coverage (EOC). $13.89 the desire #7380 to save (delivery money. & drivers) $3.28 coverage for an injury or illness suffered on the job, especially so if you pay for coverage when the injury or Many policies state that, We will not $6.54 If the your decision to exempt $7.96 yourself #4299 is based (lithography upon a fear of being chose previously to exclude yourself disease is work-related, and if workrelated benefits and coverage were & prin ng) $1.43 charged high premiums based upon under your company s workmans $3.40 your executive salary then you $1.40 should comp policy. or are available under workmans #932 (quick be aware prin ng that most PA only) states place $1.10 a cap How is that possible? Many states comp. Basically, health carriers have $1.25 on executive salaries. As an example, have adopted the Exclusive Remedy the right to deny coverage based on $- $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 $14.00 $16.00 in California, officers and owners theory. As an example, California is the fact that it was a work related High Per $100 Low Per $100 Average Per $100 salaries are capped at a fixed amount. an Exclusive Remedy state, and injury or illness. In 2012 this cap was $104,000. that means that your only remedy for Owners who find themselves lifting To put this in perspective, using an estimated clerical rate of injury or illness is workers compensa- dangerous equipment, and delivering benefits arising out of a work related heavy boxes, operating potentially $0.75/$100 in remuneration, and a salary tion coverage. products to customers need to revisit of $104,000, the maximum worktion ers compensation coverage would cost only $780, regardless of how much the Thus, even if you have standard health insurance coverage (once again California is a perfect example of this) the issue of whether requesting exemption from WC coverage is really in their best interest. Published by NPOA & Q.P. Consulting, Inc. -5- Copyright 2013 NPOA

Most Common Codes Used in Prin ng Industry Most Most Commonly Used NCCI* Codes Cited in in NPOA NPOA Survey Survey #8810 (clerical or dra ing) #8742 (sales persons - outside) #8019 (prin ng - CA & IL) #8015 (quick prin ng) #8012 (quick prin ng - NY only) #7380 (delivery & drivers) #4299 (lithography & prin ng) #932 (quick prin ng PA only) $0.44 $0.09 $0.24 $1.01 $0.15 $0.55 $1.78 $0.49 $0.99 $1.50 $1.10 $1.28 $1.43 $1.40 $1.10 $1.25 $2.56 $1.94 $2.28 $3.28 $3.40 $6.54 $7.96 $13.89 $- $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 $14.00 $16.00 High Per $100 Low Per $100 Average Per $100 AVERAGE RATE COMPARISONS The bar chart above reports the nationwide (or regional) rates per $100 of salary/wages for eight of the most common classifications (both NCCI and assigned) cited for employees in the printing industry. *(Non-NCCI codes and rates reported as well). Owners who perform none of the above but who do make outside sales calls are equally at risk of injury and need to consider what would happen and who would provide coverage if they were involved in a major accident while on the way to visit a client. How would medical treatment and rehabilitation costs be covered and by whom? The realities are that your potential risk of exposure to a job-related illness or injury may be much higher than you have previously considered. Exposure to risks, combined with the possibility of denial of coverage by your regular insurance company, plus the relatively low premiums and caps on executive coverage, are factors worth taking a new look at. NCCI RATES PER $100 STATES WITH HIGH & LOWEST RATES Lowest Per $100 Highest Per $100 #4299 (lithog. & printing) Ohio $1.43 California $7.96 #7380 (delivery & drivers) Oregon $3.28 Illinois $13.89 #8015 (quick printing) Georgia $0.49 Illinois $1.78 #8742 (Outside Sales Reps) Massachusetts $0.15 California $1.01 #8810 (clerical or drafting) Massachusetts $0.09 Vermont $0.44 Who Pays the Most & Least for Workers Comp? Sometimes you hear printers complaining that, Our Workers Comp rates are the highest in the country, while others will brag that their rates are among the lowest. Of course, the reality is that it really depends on the specific classification rate you are talking about and how that rate is weighted when combined with other rates typically utilized and assigned to printing in your state. Nonetheless, someone has to be the lowest and someone else has to be the highest. The table above analyzes the Published by NPOA & Q.P. Consulting, Inc. -6- Copyright 2013 NPOA

Primary NCCI Codes Used/Cited by Primary Primary Survey NCCI NCCI Codes Participants Codes Used/Cited by by Survey Survey Par cpants Misc. Codes Misc. (Non-NCCI), Codes (Non-NCCI), 18.8% 18.8% 4299 (lithography, 4299 (lithography, prin ng), prin ng), 18.3% 18.3% 7380 (delivery 7380 (delivery & drivers), & drivers), 4.2% 4.2% 8810 (clerical 8810 or (clerical dra ing), or dra ing), 18.3% 18.3% 8742 (sales 8742 persons (sales persons - outside), - outside), 10.0% 10.0% 8015 (quick 8015 prin ng), (quick prin ng), 30.4% 30.4% DISTRIBUTION OF NCCI CODES BY SURVEY PARTICIPANTS The pie-chart above illustrates the distribution of the six most popular NCCI-assigned codes used by insurance companies to assign risks and coverage in the printing industry. on - All -Par cipants All 28.91% five most common classifications and then provides the states with highest and lowest rates. Conclusion The average company participating in our survey reported they employed 7.7 covered employees and paid an average annual premium 17.19% of $4,321. 17.19% Although the latter was indeed the average expenditure reported, many of our survey participants, 9.77% 9.77% because they were larger companies, indicated they were 6.64% 6.64% paying premiums ranging anywhere between $8,000 and $18,000. Whether or not you participated in NPOA s survey, we believe it would 4.30% What 4.30% is your largest press? If it is #8015 #8016 #8016 #8029 #8029 #8742 #8742 #8810 #8810 #8813 #8813 Misc. Misc. es d in Used Prin ng Prin ng Industry Industry be in the best financial interest of your company to retrieve your workers compensation policy and reexamine the classifications that have been assigned and used for your various employees. If necessary, ask your insurance agent why certain employees are assigned certain classifications and whether there are any alternatives, including making changes in your plant layout that would allow reclassification of these employees. smaller than 18 x 23, you may want to double-check that your press operators have not being assigned a higher, more expensive NCCI Code than is required. The best overall advice we can offer is that while you cannot control the safety practices followed by your competitors, you can ensure that you provide a safe work environment and that you insist that your employees follow prudent safety practices at all times. It is not a question of adhering to OSHA regulations or following the letter of the law, but rather taking a common-sense approach to safety that will result in the greatest savings for your company. ited es Cited in NPOA in NPOA Survey Survey Published by NPOA & Q.P. Consulting, Inc. -7- Copyright 2013 NPOA